Hess Midstream LP(HESM) - 2025 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The company's unaudited Q1 2025 financial statements show increased assets and operating cash flow, with a significant rise in net income attributable to its shareholders Consolidated Balance Sheets Total assets grew to $4.3 billion, driven by a deferred tax asset, while total liabilities and partners' capital also increased due to debt and equity transactions Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $150.1 | $149.4 | | Property, plant and equipment, net | $3,324.4 | $3,325.4 | | Total assets | $4,263.6 | $4,151.0 | | Total current liabilities | $186.1 | $219.3 | | Long-term debt | $3,546.8 | $3,449.4 | | Total liabilities | $3,750.7 | $3,685.7 | | Total partners' capital | $512.9 | $465.3 | Consolidated Statements of Operations Q1 2025 revenues rose to $382.0 million, and net income attributable to Hess Midstream LP grew significantly to $71.6 million, reflecting ownership changes Q1 2025 vs Q1 2024 Statement of Operations (in millions, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenues | $382.0 | $355.6 | | Income from operations | $237.4 | $222.0 | | Interest expense, net | $56.4 | $48.5 | | Net income | $161.4 | $161.9 | | Net income attributable to Hess Midstream LP | $71.6 | $44.6 | | Diluted EPS | $0.65 | $0.59 | Consolidated Statements of Cash Flows Operating cash flow increased to $202.4 million in Q1 2025, while financing activities included debt refinancing, unit repurchases, and higher shareholder distributions Q1 2025 vs Q1 2024 Cash Flows (in millions) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $202.4 | $185.3 | | Net cash used in investing activities | $(45.5) | $(54.8) | | Net cash used in financing activities | $(155.1) | $(131.7) | | Increase (decrease) in cash | $1.8 | $(1.2) | Notes to Consolidated Financial Statements Notes detail significant equity transactions, debt refinancing, a high dependency on Hess for revenues, and a subsequent increase in shareholder distributions - In February 2025, GIP sold 12,650,000 Class A Shares in an underwritten public offering; the company did not receive any proceeds from this transaction[31] - In January 2025, the Partnership repurchased 2,572,677 Class B Units from its Sponsors for approximately $100.0 million, funded by its revolving credit facility[35] - Revenues from commercial agreements with Hess accounted for 98% of total revenues for the first quarters of both 2025 and 2024[47] - In February 2025, the Partnership issued $800.0 million of 5.875% senior notes due 2028 and used the proceeds to redeem its $800.0 million 5.625% senior notes due 2026, recognizing a $2.0 million extinguishment loss[58] - Subsequent to quarter-end, the company declared a Q1 2025 cash distribution of $0.7098 per Class A Share and entered into agreements for a $190.0 million Class B Unit repurchase and a $10.0 million accelerated share repurchase (ASR)[82][83][84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes a 7.4% revenue growth to higher volumes across all segments, resulting in increased Adjusted EBITDA and strong liquidity Overview and First Quarter Results Recent equity transactions increased public ownership to 53.8%, while strong Q1 2025 results were driven by higher throughput volumes and led to an increased distribution - As a result of equity offering and unit repurchase transactions, public ownership increased from approximately 47.3% at December 31, 2024, to approximately 53.8% at March 31, 2025[93] - Throughput volumes increased YoY in Q1 2025: gas processing up 8%, oil terminaling up 7%, and water gathering up 9%, primarily due to higher Hess and third-party production[100] Q1 2025 Financial Highlights | Metric | Value | | :--- | :--- | | Consolidated net income | $161.4 million | | Net income attributable to Hess Midstream LP | $71.6 million | | Basic EPS | $0.65 per Class A Share | | Net cash provided by operating activities | $202.4 million | | Adjusted EBITDA | $292.3 million | | Declared Cash Distribution | $0.7098 per Class A Share | Results of Operations Total revenues grew by $26.4 million year-over-year, driven by higher volumes across all segments, though offset by increased interest and income tax expenses - Gathering segment revenue increased by $15.5 million, driven by higher gas, water, and crude oil physical volumes[122] - Processing and Storage segment revenue increased by $8.7 million, primarily due to higher gas processing physical volumes[125] - Interest expense increased by $7.9 million, mainly due to new senior notes issued in May 2024 and February 2025, and a $2.0 million loss on early debt redemption[128] Q1 2025 vs Q1 2024 Throughput Volumes | Service | Unit | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | | Gas gathering | MMcf/d | 431 | 404 | +6.7% | | Crude oil gathering | MBbl/d | 117 | 106 | +10.4% | | Gas processing | MMcf/d | 424 | 393 | +7.9% | | Crude oil terminaling | MBbl/d | 125 | 117 | +6.8% | | Water gathering | MBbl/d | 126 | 116 | +8.6% | Capital Resources and Liquidity The company maintains strong liquidity through operating cash flow and credit facilities, recently refinancing $800 million in debt while funding capital expansion - Ongoing sources of liquidity include cash on hand, cash from operations, borrowings under the revolving credit facility, and issuances of additional debt and equity securities[142][146] - In February 2025, the Partnership issued $800.0 million of 5.875% senior notes due 2028 and used the proceeds to redeem its outstanding $800.0 million 5.625% notes due 2026[144] - 2025 capital expenditures are focused on constructing two new compressor stations and associated pipeline infrastructure, expected to be in service in 2025[157] Capital Expenditures (in millions) | Period | Total Capital Expenditures | | :--- | :--- | | Q1 2025 | $50.1 | | Q1 2024 | $35.2 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure from variable-rate debt, with minimal direct commodity price risk due to its fee-based model - The company has minimal direct exposure to commodity prices as it generates substantially all revenues from fee-based agreements with minimum volume commitments[164] - The primary market risk exposure is to changes in interest rates on its variable-rate debt; as of March 31, 2025, the company had no derivative instruments to hedge this exposure[165] - At March 31, 2025, total debt had a carrying value of $3,571.8 million and a fair value of $3,565.5 million; a 15% change in interest rates would alter the fair value of fixed-rate debt by approximately $91-95 million[166] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[169] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[170] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings but does not expect any material adverse financial impact from known matters - The company is subject to various judicial and administrative proceedings in the ordinary course of business but did not have material accrued liabilities for legal contingencies as of March 31, 2025[74][75] - The company is remediating a produced water release from a pipeline in North Dakota; as of March 31, 2025, total reserves for all estimated remediation liabilities were $3.2 million[72][73] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - The risk factors that could materially affect the business, as disclosed in the 2024 Annual Report on Form 10-K, have not materially changed[174] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first quarter of 2025 - No directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended March 31, 2025[175] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including debt indentures, repurchase agreements, and required certifications